An extremely large market exists for commodity products such as crude oil and refined light oils. There are many thousands of transactions per year for many billions of dollars of product. The traditional marketing of these products has been performed by traders who work for the buying and selling businesses by entering into a series of transactions for the purchase and sale of the crude oil or refined light oils. Since the transactions are repetitive, the parties typically use a previous contract and modify it for the current transaction. A document is either exchanged between the parties and marked-up, or each party maintains its own copy of the contract and enters the current transaction parameters based on telephone calls or faxes exchanged between the traders. A transaction may be finalized between traders without the formal execution of a signed document between them. In other cases, there is such a finalized document. Next, the scheduling of the product delivery is typically performed by schedulers who are employed by the buying and selling businesses. The scheduling is very complex because the availability of the product and the consumption of the product varies tremendously over time. Further, petroleum products are primarily transported through pipelines and the availability of the transportation facility cannot be planned far in advance. The optimum use of the transportation facilities requires a knowledge of all the transport that is required from all of the parties. The transaction is further complicated by the variation in the composition of the product such that the exact value of the product cannot at all times be predicted in advance. Thus, in many cases the volume of product and the composition of the product cannot be known until after the product has been delivered to the buyer.
The traditional system is time consuming and subject to mistakes and controversies. If the parties maintain separate records, there can be a later dispute over the actual terms of the agreement. The method of determining price can be ambiguous even though it was apparently agreed to by the traders at the initiation of the transaction. Although using the same words, the parties could actually be using different methodologies in calculating a price. Further, each of the, parties must update various incompatible systems within its own business with much of the data for the transaction, scheduling and settling. Thus, the same data must be repeatedly entered by different people within each of the businesses. This often leads to mistakes that cause controversy with the other party and require a great deal of time to resolve and can result in the business having to write off substantial sums of money due to the inability to prove or reconcile the transactions.
Electronic trading systems have been established for dealing in many kinds of products, including commodity products such as crude oil and refined light oils. These trading systems, however, are limited to bringing together parties who can establish the initial trading parameters for a transaction, but beyond that point the parties are subject to the usual difficulties of ambiguous terms and inexact knowledge until after the transaction has been completed. Electronic trading systems can assist businesses in making trades, but many of the inherent problems of traditional trading are still present.
In view of the above problems, there exists a need for a unified trading system that eliminates the ambiguities in agreements, tracks the transaction through to completion and mandates that the parties are in agreement on all the data at various stages of the transaction. Such a trading system can assist the industry in many ways by providing tracking information. It can further be used to provide data for assuring lines of credit to participating parties.